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Everything retirement planners need to know about the Conservative Party manifesto

On 8th June, the nation went to the polls and delivered a surprise result in the form of a hung parliament, with the Conservatives taking the most seats. Financial journalist John Fitzsimons (@johnthejourno) looks at what the Conservatives pledged to do in their manifesto, and how those promises may affect our finances.

Property to be used to help cover social care costs

'Triple lock' or 'double lock' for State Pension increases?

Expanding auto-enrolment scheme to self-employed workers

An air of uncertainty

The first thing that needs to be said is that there is currently a lot of uncertainty about exactly what the election result means for the country at large.

What we do know is that, despite not winning a majority, Theresa May and the Conservatives have managed to reach an informal agreement with the Democratic Unionist Party (DUP). Though not a coalition government, the DUP have pledged to support the Conservatives on a number of policies.

So what does the Conservative manifesto look like and how could it affect retirees and pension planners?

Social care

One of the biggest stories to come out of the Conservative manifesto is the party’s plans to tackle the social care funding gap. According to The Health Foundation, social care is facing a £2.1 billion funding gap by 2019/20 to meet the growing need for care.

The Conservative manifesto announced that the value of a person’s home will now be included, alongside other assets and income, when means testing for care. Essentially, this means that a person’s home will go towards paying for their care, though there will be a £100,000 floor.

If you are receiving care at home, you’ll be able to defer payment for your care until after death, meaning that you won’t have to sell it during your lifetime in order to cover your care costs. In the current system, a person’s assets can be reduced to £23,250 to cover these care costs.

Theresa May added to this policy after the manifesto was published, declaring that, in addition to the £100,000 floor, there will be an upper limit on just how much you will have to pay for your care should you require it. However, that cap figure has not been finalised, with a consultation due to be held to establish just what it should be.

Auto-enrolment

Over the last couple of years, the government’s auto-enrolment scheme has been phased in. This initiative requires employers to open a personal pension on their employees’ behalf, and contribute towards it.

Back in December the government announced that around seven million employees had been enrolled in workplace pensions by around 300,000 employers, and this is expected to hit 10 million people by 2018.

However, there are restrictions around who can benefit from auto-enrolment, with the self-employed currently excluded. The Conservatives pledged to change this though, extending the scheme to include those who work for themselves.

Guaranteed annual increases in the state pension

The pensions ‘triple lock’ came under scrutiny during the election campaign. It was introduced by the coalition government in 2010, saying that each year the state pension would increase by the largest of the following three figures:

The rate of inflation

The rate of wage growth

2.5%

The Conservatives pledged to keep the triple lock in place until 2020, at which point it will be replaced by a ‘double lock’, which will see the state pension increase by the highest of either wage growth or the rate of inflation.

It’s interesting to note that this is one area of disagreement between the Conservatives and the DUP, with the DUP wanting the triple lock to stay in place.

In addition, the manifesto pledges that the state pension age will ‘reflect increases in life expectancy, while protecting each generation fairly’. In other words, it will likely continue to rise; it is due to increase to 66 for both men and women by 2020, and then 67 between 2026 and 2028. The state pension age chart shows the latest predicted increases.

Support for long-term saving

The Conservative manifesto says that the party will promote long-term savings and pension products to ‘encourage and incentivise more people to make provision for long-term needs, including a house purchase and retirement’.

Pensioner benefits

At the moment, all pensioners, regardless of their financial position, receive the winter fuel payment, which is worth between £100 and £300. However, the Conservatives have pledged to means test this in the future, so that only less well off pensioners receive the cash. The saved money will instead go towards further funding for social care.

Other pensioner benefits, such as a free TV licence and bus passes, will continue to be offered universally.

Protecting private pensions

Over the last year, the issues faced by the BHS pension scheme have been big news, with a government investigation pointing the finger at the firm’s former owners.

The Conservative manifesto argues that the current powers of financial regulators and the Pension Protection Fund are not enough to protect pension savers from ‘unscrupulous business owners’. Its answer is to tighten the rules against abuse by owners, and give the regulator new powers to issue significant fines against those who have ‘wilfully left a pension scheme under resourced’.

What happens now?

Only time will tell exactly what the agreement between the Conservatives and the DUP will look like. Once the government is in place, we will have a much better idea of how many of their financial pledges will realistically make it into law.